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Estate planning and new tax laws

Federal tax law changes that went into effect in Florida and across the nation in 2013 have caused upheaval in the way people navigate through the maze of estate planning. While people traditionally used a bypass trust in order pass their wealth to beneficiaries, they may no longer need to be concerned about the estate tax. The new law permanently exempted estate and gift taxes and increased tax rates for capital gains. Another tax of 3.8 percent on investment income was enacted to help pay for the Affordable Care Act. Capital gains rates increased by nearly 9 percentage points in some cases or from 15 percent in 2012 to 23.8 percent in 2014.

The Tax Policy Center reports that only .14 percent of adult deaths in 2014 will trigger the federal estate tax compared with a 7.65 percent rate in 1976. That is because people can transfer $5.34 million to heirs without paying a transfer tax, and married couples can use these benefits as well. In addition, the exclusion rates will increase for inflation, and just one spouse could use the benefit if the other spouse is deceased.

Beneficiaries now have the option of selling assets without paying capital gains even if they have appreciated significantly in worth. However, if a person who is alive gives them property, the recipient will need to pay taxes on it. This strategy is important for many families especially those with large estates. In addition to federal taxes, families will need to consider state taxes as well.

New tax laws have impacted estate planning. A tax lawyer might be able to help clients determine how to structure their estate so they can avoid paying taxes where possible.

Source: Forbes, "Freebasing Your Estate", Deborah L. Jacobs, February 12, 2014

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